What do depreciation areas determine?

Depreciation areas in SAP S/4HANA play a crucial role in determining the methods used for calculating depreciation on fixed assets. Each depreciation area can have its own set of rules and methods, allowing businesses to manage their asset valuations appropriately for different purposes, such as financial reporting or tax compliance.

In the context of financial management, depreciation areas enable the system to maintain multiple values for the same asset, accommodating various accounting requirements. This flexibility is essential, as different jurisdictions or financial standards (like IFRS or GAAP) may dictate different approaches to depreciation.

While cost allocation rules, default accounting codes, and inventory valuation methods are critical aspects of financial and business processes within SAP, they do not relate directly to how depreciation itself is calculated within specific depreciation areas. Therefore, the focus on calculation methods for depreciation accurately captures the primary function of depreciation areas in the system.